Many Americans have no idea they’re making two big mistakes with their retirement savings, one investment strategist says.
Marta Norton, the chief investment strategist at Empower, one of the nation’s largest 401(k) providers, opined on the biggest mistakes she saw when it came to Americans investing for retirement. On the client side, there are two errors that consistently stick out: not investing enough in your 401(k), and investing too much into stocks, she said, speaking recently to Bloomberg Radio.
First, many Americans could increase 401(k) contributions, Norton said, noting that some workers weren’t contributing enough to get their company’s full matching contribution.
A 2015 study conducted by the investment advisory Financial Engines estimated that Americans leave a collective $24 billion in unclaimed 401(k) company matches every year.
“Everyone points out that’s free money,” Norton said of the employer match. “I think that’s probably the most obvious mistake.”
Second, many Americans are taking a do-it-yourself approach to retirement investing — and are getting too much exposure to stocks, rather than to assets like cash and stable-value investments, Norton said.
Most retirement accounts are heavily exposed to stocks, a strategy to build long-term wealth. But investing too heavily in equities could work against older Americans, who are closer to exiting the workforce and are thought to be more vulnerable if stocks were to see a significant correction.
A 2023 Fidelity report found that more than a quarter of baby boomers had an “aggressive” allocation to stocks in their retirement accounts, meaning their portfolios were weighted more heavily toward stocks than the target allocation Fidelity recommended for their age.
“If you’re thinking about what is the hidden risk for some people who are kind of investing on their own in retirement, it might be that they’re taking on a bit too much equity than is appropriate for their particular situation,” she added.
More attention has been shed recently on the dangers of overinvesting in stocks, particularly as movements like Financial Independence, Retire Early garner more online pushback. In the FIRE community, the risk of having to withdraw retirement savings during a market downturn — locking in the losses on investment — is known as the sequence of returns risk.